Further discussion on consolidation

Last Monday we posted a piece called Consolidation is the wrong response, which was (as with all our Monday posts) also cross-posted on the New Urban Network site. The post generated a lot of substantive discussion and, in the spirit of all of us learning together, I wanted to take the opportunity now to comment on those comments. On this issue, as with most others, I welcome the free and respectful exchange of ideas, with the ability to disagree in a thoughtful way. 

Consolidation of units of local government may seem to increase efficiency by reducing duplication and taking advantage of economies of scale. But scholars have long been puzzled by the counter-intuitive data that show that areas with fragmented governments seem to have lower overall costs of public services. Oakerson (Governing Local Public Economies) notes that smaller governments can take advantage of diverse economies of scale through joint purchasing or consolidating some functions like IT, and achieve most of the benefits of economies of scale without the bureaucracy of a large organization.

A strong driver of the observed higher costs in consolidated (larger) governments is the phenomenon--pervasive in the public sector--of higher overall wage rates with larger organizations. In a consolidation of five feeder elementary districts with the high school district, this fact caused--to the proponents' surprise--a $1 million/year increase in the cost of the consolidated district compared to the sum of the costs of the six smaller districts.

-Scott

The book Scott refers to by Oakerson can be read for free online or can be ordered from Amazon.

I think Scott makes some great points. I would add to this what has been called the "expert problem", or the over reliance on experts. With consolidation, you get a much larger system and a much smaller group of experts capable of running it (thus the higher salaries). The larger system is, by definition, more difficult it is to manage and change. This forces us to rely on experts, who may or may not actually know what they are doing. In fact, when the "experts" are all trained in the same way and employ the same "industry norm" approaches in their larger communities, any problems or fragilities are magnified. We all become brittle to the same things at the same time.

I also sense that the large systems and their reliance on experts -- which is really another way of saying that they create separation between the public officials and the actual decisions that are made -- is one of the reasons why consolidation does not really lead to workforce reduction or sustained cost savings. My experience has been that experts tend to want more supporting staff, better systems, etc... Sometimes there is a benefit, but often not. But how is anyone to know - they are the "expert" after all.

The expert problem is explored in depth in a book called The Invisible Gorilla: and other ways our intuitions deceive us. In that book it is called the "illusion of knowledge". 

Rather than waving our hands in the air and arguing for fragmentation of local governance as a solution, and innovation as some vague pie in the sky solution that may one day pop up...why not consider that there IS tremendous inefficiency in metro areas.  Having 43 cities all with the same redundant capital and salary systems - 43 GIS systems, 43 building code tracking systems, etc., is dumb and wasteful.

From a land use perspective, we have a spatial mismatch between land use and transportation system plans and authority. Portland Oregon has Metro - and they have coordinated land use and transportation planning in a way that has reduced VMTs, GHG and protected the environment. How? Because land use and transportation is coordinated and consolidated at the regional level.  It has created very livable - transit supportive communities

-Bob

I concur with Bob that it is pretty hard to have innovation today in our current municipal structure. But if we agree on the need for innovation, the question then becomes: how best to achieve it? I would suggest that removing the mandates and restrictions on municipalities would be an essential first step. Establishing a system to monitor and report on results would be a second. A mechanism that rewards success and provides a path for correcting mistakes would be the third.

A local-centric approach will be inefficient -- just like the local hardware store, grocer, baker and butcher are inefficient when compared to Wal-Mart -- but, if we can establish the right system, what you lose in efficiency you can gain back in innovation and resilience.

This is the mechanism behind natural evolution. Species adapt and respond differently to stresses. The most successful survive to pass on their genetic material. Over time, very complex and resilient systems form organically through this process. The natural world around us is a product of that.

What we struggle with as humans is an inability to allow failure. We do everything we can to prevent it, especially within government systems. We need to find a way to embrace failure and learn from it. Our systems should not be fragile to stress as they are now -- they should actually grow stronger from it. 

To put it bluntly, a city needs to have a consolidated urbanized area, or be unconsolidated to the point the core is effectively its own city--the most consolidated cities in the country, in the Sunbelt, were the ones which were most successful in the past half-century--or at least the ability to undertake consolidated transportation planning (Boston and San Francisco are good examples of this: highly unconsolidated metropolitan areas with highly consolidated transportation networks). There is no in between--Australian cities, contrary to Eurasian cities, work because of their lack of consolidation. Most American cities are only half consolidated, and so paths to their success would seem to either involve shedding unsuccessful sections of the urban area, leaving only the core, or consolidating to the entire urbanized area, allowing for superior growth management (read: the imposition of a single zoning code across the urban area). Our political networks date from a different era, and are optimized to different needs--which is where the problem really stems from.

- Steve

I think Steve makes a valid overall point here. In Minnesota, we have cities and townships. Often the cities are the core land area around the old railroad stop and the township is everything else in the six mile by six mile grid. We've given townships nearly the same abilities as cities to zone and grant land use approvals. This creates some very perverse incentives where a business can locate just outside of town, have the same police and fire service as someone paying taxes inside of town, but have a fraction of the cost. This is bad policy.

Our cities need to be urban and our countryside needs to be rural. This goes for large metropolitan areas as well as small towns.

I would support consolidation of individual cities with their surrounding townships in cases where these perverse incentives exist. 

I do not disagree that innovation is needed but is not consolidation one form of innovation?  Is it not innovative to take 7 small communities with 7 police chiefs, 7 deputy chiefs and consolidate into one larger, more efficient department? One chief, one deputy chief and a supervisor who can watch more than 2 officers. Consolidation is not always bad.

-Dave

I guess you could say that consolidation is a form of innovation, it just doesn't seem like the kind of innovation we need. Bringing two cities together as one is going to provide some near-term cash flow advantages, but that will only put off any substantive land use reform, infrastructure reform, budget reform or any of the myriad of reforms we need to see right now.

As an example, our biggest problem at the local level is a nationwide, homogeneous approach to development that has come to dominate the market at every level by providing near-term cash flow advantages in exchange for significantly greater long-term financial liabilities. The system of delivery of this development pattern -- from the zoning to the financing to the transportation to the environmental reviews to the government programs -- is extremely efficient. That is why it has become, with few exceptions, the sole development approach in the country.

We can try and fight at the federal level to force a new option on people, but what is to say that would not be just as bad? 

To me consolidation just puts off the inevitable reforms that need to happen while ensuring that those reforms are more painful and difficult when they are forced to happen in a larger system more resistant to change.

To wrest control of our environs back from the bureaucratic upper levels of government would require reversing the taxation scheme we have now. Make the Feds and the States beg the local municipalities for their collected tax monies. We got some good stuff built by the top-down method of governance, but it came at the expense of local investments, and it's simply ground to a halt as nobody can come to a consensus on what our priorities as a nation are. Now it's time for more local investment, building resiliency, improving quality of life, and doing it with our own money rather than shipping it off to some unknown location where it gets mixed together and redistributed by some arbitrary formula.

-Jeffrey

This sounds like a crazy idea, Jeffrey, because it flips the current approach completely around, but I think it deserves real examination. I like it. 

As a bad analogy, I read a book on the American Revolution and it talked about how difficult it was to sustain a fight because the troops were essentially volunteers and could go home when things stopped working. There was no chance a new United States was going to become militaristic because doing so would require a sustained level of local support for was that was just not possible. 

Many times the large systems we have created just don't respond to local initiatives. Or they over-respond, losing the local context that made it work. A different taxing mechanism would certainly drive innovation while making those large systems more than a little more responsive to what is taking place in the trenches.

Incidentally, I did a presentation last November on the Tea Party and how city advocates should jump at the chance to give them what they want. (Here it is in podcast: Red and Blue America). My findings were that blue states tend to want more government spending but actually get back less money from Washington than they submit in tax payments. Red states are the reverse, seeking less government spending but actually getting back far more money than they send in. If we let places keep their money, blue states would have more to spend and red states would have less government. Everyone happy. 

Question:  In lieu of a structured incentive arrangement, does the League of Minnesota Cities provide a useful peer-to-peer learning environment?  Or some other existing process?

-Denise

I am not sure, but good idea. I respect what the League is doing and there are certainly people there that understand the long-term solvency issues, but I sometimes get frustrated with them. They too often are on the side of advocating for no change when I think they should be arguing for a stable and predictable mechanism to move cities to a more stable footing. But I understand they are in a tough spot as few of the communities they represent want any substantive change.

And maybe that is a good thought to end this post with: our actual lack of desire for change. If evolution occurs through a reaction to stress, there are few of us that would seek evolution because few of us welcome stress. To me a sustainable system of local government is one that organically drives innovation by allowing cities to respond and adapt to stress while simultaneously measuring results, rewarding success and correcting failure.

As Nassim Taleb has stated, the best systems have an anti-fragility mechanism. A box labeled. "Fragile. Do not drop."  would obviously contain something that would break when subjected to the stress of dropping. But what about a box labeled, "Anti-fragile. Please drop often."

Can we design systems of governance that actually improve when subjected to stress? I think we can, but not by solidifying the status quo through greater consolidation.

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